MELBOURNE, Feb 6 (Reuters) - A plan by the Australian...

MELBOURNE, Feb 6 (Reuters) - A plan by the Australian government to force power companies to cut prices has come under heavy attack from the industry, big users and regulators, who warn the proposed legislation could deter badly needed investment and drive up energy costs.

The conservative government tried to rush the so-called "big stick" legislation through parliament in December, looking to appease voters who have seen power tariffs more than double over the past decade. Instead the bill was sent to a Senate panel for an inquiry.

The legislation, designed to carry out recommendations from Australia's competition watchdog but which the industry says is unnecessary, seeks to prevent bad behaviour in the spot, contract and retail power markets.

The push by Prime Minister Scott Morrison to cut power prices came after the Liberal Party last August scrapped a widely supported energy policy designed to cut emissions, lower prices and make the grid more reliable.

Australia's biggest power generators, retailers and large energy customers this week told the Senate panel the legislation would likely drive up power prices, weaken competition and chill investment.

"I appeal to you as representatives of the Australian people to acknowledge this bill for what it i a desperate and dangerous measure to look tough ahead of the election," EnergyAustralia Managing Director Catherine Tanna told the panel on Wednesday. EnergyAustralia is owned by Hong Kong's CLP Holdings 0002.HK .

An election is due in May. Under the legislation power retailers must pass on to consumers reductions in their underlying cost of procuring electricity.

The legislation also would allow the Treasurer to force a power producer to offer hedging contracts, if it were deemed to have refused to offer contracts in order to limit competition.

The legislation would also bar generators from manipulating spot electricity prices. In a serious breach, the Treasurer could apply to a court to force a generator to divest assets, the measure most feared by the industry, including the state government of Queensland which owns three power generation companies.

Kerry Schott, head of the government-appointed Energy Security Board, told the panel at a hearing in Sydney on Tuesday that the policy of divestment was "a huge sledgehammer to use".

The industry said the legislation is too vague and uncertain. As a result, investors considering building new generation would have to factor in a risk premium that would result in higher prices or would deter investments.

"It heightens sovereign risk for investors," said Sarah McNamara, chief executive of the Australian Energy Council, which represents power producers.

The Treasurer's office was not immediately available to comment on whether the bill would be pushed through parliament before the election.